Funds Shift Trading Patterns to Adapt to T+1 Regime, CLS Says

(Bloomberg) -- Investors are funding stock trades ahead of time and relying more on automation for their transactions after the US moved to one-day securities settlement in May, as the currency market adapts to a new regime.

Most Read from Bloomberg

• Saudis Warned G-7 Over Russia Seizures With Debt Sale Threat

• Microsoft Orders China Staff to Use iPhones for Work and Drop Android

• Hurricane Beryl Makes a Mockery of Texas Climate Deniers

• S&P 500 Posts Longest Winning Run Since January: Markets Wrap

• Biden’s Biggest Donors Left Powerless to Sway Him to End Bid

CLS, the world’s largest currency settlement firm, observed an uptick in submissions to its settlement service starting from 2 p.m. Central European Time, a sign overseas funds are buying dollars before executing their US stock trades. The firm noticed a more pronounced increase between 10 p.m. and 11 p.m., possibly reflecting a rush to file trades at the end of the US session to meet CLS’s deadline.

The US halved the time it takes to settle securities transactions to just one day, a move known as T+1, which put stocks out of step with the FX world. The transition has gone smoothly so far, despite warnings from the likes of the European Fund and Asset Management Association that investors would struggle to meet the new deadlines. CLS said there has been no decrease in the volumes it processes.

“There are early signs suggesting that the shortened settlement cycle is influencing behavior within the asset manager and fund communities,” CLS said in an emailed statement. The increase in evening volumes potentially reflects “enhanced process automation and support from global custodians in adjusting cut-off times.”

Financial institutions across the globe prepared for the T+1 switch by relocating staff, adjusting shifts and overhauling work flows. That may have allowed asset managers to continue using CLS instead of resorting to bilateral transactions. The firm is a key cog in the $7.5 trillion-a-day currency market because it operates a system that ensures investors in both sides of a transaction get paid at the same time.

Most Read from Bloomberg Businessweek

• At SpaceX, Elon Musk’s Own Brand of Cancel Culture Is Thriving

• Psychedelics Are Now Legal in Australia—With a Catch

• How to Invest During a High Interest Rate Era

• The Rich Investor Club Is Getting Crowded

• How Stocks Became the Game That Record Numbers of Americans Are Playing

©2024 Bloomberg L.P.